Argentina starts to cut soybean tax, short-term impact muted

Argentina – the world’s third largest exporter of soybeans and largest exporter of soymeal – will this month start to gradually lower export taxes on the oilseed from 30% to 18% by the end of next year – the lowest level since 2002.

Starting in January and declining 0.5% each month for two years, the reduction is part of President Mauricio Macri’s plan to boost production in, and exports from, the nation’s massive agriculture sector.

The policy, which was outlined in 2016, is expected to cost the nation’s treasury about ARS 15 billion ($815m), according to a 2017 report by the Rosario Stock Exchange.

Yet the government is hopeful that cutting export taxes on soybeans will boost production, much the same way that eliminating taxes on corn and wheat exports in 2015 encouraged farmers to plant 50% more grain over the last three years.

But while the plan is politically contentious, with opponents claiming it is a massive transfer of wealth to soybean farmers, it won’t have an immediate impact on short term trade flows or prices.

Esteban Copati, head analyst at the Buenos Aires Grain Exchange, told Agricensus it would be some time before any changes would occur and that more immediate price concerns revolved around weather and currency movements.

“It is possible that during the following year we may see an expansion in soy planting, but whether the tax cut is enough? I think we will have to wait until the beginning of the new season (in late 2018) before estimating any impact,” said Copati.

Dry

Argentinian production of soybean is expected to remain flat for the third consecutive year at 57 million mt, with exports reaching 8 million mt, according to the USDA.

However, that figure could fall as poor soil moisture following a spate of dry weather looks set to delay seed planting in the far north of the country, which accounts for around 10-12% of nationwide production.

In addition, volatility in the Argentinian peso, which has weakened 10% against the US dollar in the past month, will determine whether farmers sell or sit on beans.

And sources say it is this, rather than any export tax reductions, which could give short-term direction to prices.

“The price on the Board and the price in pesos will have a much bigger impact than this (tax cut),” said one market source. “That’s not to say of course that things might change if it (export duties) drop to 18%.”

And nor will lower exports taxes on beans mean that exporters will sell beans rather than process them and export the oil and meal products.

That’s because the half-point-per-month tax cut will also apply to the 27% export duty currently levied on exports of soyoil and soymeal, of which Argentina is the world’s largest exporter.

“They have these machines at the ports, and they need to crush in order to keep the machines moving. They have to keep on buying from the farmer – they really cannot stop, it’s going to be business as usual,” said a second trading source.